What a cry was for the loss across the globe, but did we ever hear the cry of the banks across Europe and US. We never placed our ears to them. With the blessing of globalization the world economic system has become so much convoluted that a single pinch at any of the global footstep.
The Cry of Banks – With recent fraught of Europe the US banks are very much on the verge of peril. Three US banks are having great numbers of exposure in European debts. Citigroup ,JPMorgan Chase and Bank of America are having have billions of dollars exposed to European banks and debt. U.S. banks are most at risk in Europe because of the gyrations of the overseas debt markets and potential inability to undertake fixed-income underwriting securities from European economy. The respective exposures being taken by the 3 banks of US are as follows:
• Citi’s exposure to Greece, Ireland, Italy, Portugal, Spain as well as other financial institutions and corporations located in Europe sit at roughly $13 billion.
• Citi has the most overseas exposure of anyone in our group, with roughly 50% to 60% of revenues non-U.S. based, both on the corporate and consumer side.
• JPMorgan Chase’s aggregate net exposure to Greece, Portugal, Spain and Italy currently stands at about $14 billion, with the bank’s total credit exposure sitting at $121 billion.
• Sovereign exposure in all five countries represented approximately 26% of the aggregate net exposure, with the majority of the sovereign exposure in Spain.
What ever might be the position or exposure of US banks into the European debts that amount is being owned by the US citizens and not of the Financial Players of the Wall Street. It will be a contagion fall for the US and rest of Atlantic.
Mortgaging Ratings:Borrowing.
France is one the verge of collapse due to having maximum exposure in Italian and Greek government debt which especially vulnerable. Using data from European Union stress tests on 91 European banks, Fitch Ratings said losses of 50 percent on Greek bonds and 25 percent on Portuguese and Irish bonds wouldn’t have made any of four big French banks flunk the test. Moreover the prime reason why Europe don’t want its rating of France to be below AAA credit rating since by mortgaging the rating of France Europe will raise funds to save the other nations.
US will not be taking any guarantee or backing the any European economy as they have lost faith on the European banks. Now the difficult phase comes for Europe regarding whom they will mortgage and who will lend them. U.S. money market funds have been slashing their exposure to banks in the Euro zone. Their holdings of Euro zone bonds declined about 10 percent in July, to $340 billion from $378 billion, according to research from J.P. Morgan Securities LLC.
More than the question of who will lend the question of political stability is very much on debate side. Political unrest was not visible during 2008 recession which is very much present now in the atmosphere of global economy. You might get G-20 and G-7 nations meeting on an emergency basis but the questions come who will bailout whom. The nations will come up with another round of printing money but no mechanisms for how to repay the lender.
Q3 and Later on Q4.
Every nation is actively planning to keep the inflation moving like a pendulum with borrowed capital. But even if this time Q3 (Quantitative Easing) comes for a rescue that will again come to an end at some of time. Within that time all the Presidential elections across the Atlantic will get over and another round of Q4 will be ready as a promotional political Measure. But what we economist has forgotten is the physiological behavior of the citizens of these Atlantic countries.
The riot of Europe is a prominent example of the change happening in the nature and outlook towards the future Course of Actions adopted by these ‘Fragmented Economies’. Cutting down spending and finding no way to increase income is one of the worst and toll of weakening an economy further making its recovery difficult for a prolonged period. We need to understand that we are not dealing with numbers or bailouts we are dealing with humans and their human labor which is the real back bone of any economy across the planet.
Indraneel Sen Gupta (neel19414@gmail.com )
Global Macro Economic Researcher and Business Strategist
Master of Economics, MBA in International Business Management, ICWAI (Final)/CWM Final/Journalist
Author Bio
The current financial mess of US & Europe is mainly due to their over reliance on credit ratings by rating agencies and their greed to capture the market worldwide without caring for local sensibilities. Hope some of our Indian Banks thinking of expanding their overseasreach in a bigway learn a lesson or two from this fiasco. What is the response of our national rating agencies to rating muddle of S & P and others in US.